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Iran Sanctions: Early Easing of Sanctions Increasingly Possible

Public officials from the United States increasingly are making public statements regarding the likelihood that “Implementation Day” – the day on which many US and EU sanctions against Iran will be eased – will arrive in the near future. These statements lend support to recent indications in both the European Union and United States that Implementation Day may come earlier than had been generally predicted – perhaps as soon as January or February 2016, potentially leaving companies with less time to prepare for the easing of sanctions than they might have anticipated.

Under the Joint Comprehensive Plan of Action (JCPOA) agreed to last summer with Iran, the European Union and United States will provide certain economic sanctions relief to Iran on Implementation Day, which occurs when the International Atomic Energy Agency (IAEA) verifies that Iran has fulfilled key nuclear-related commitments under the deal. The United States and the European Union have taken preparatory actions in anticipation of their commitments to suspend certain sanctions against Iran on Implementation Day.

For a description of the various types of sanctions relief due to occur at that time, please see our prior OnPoints (here and here). In particular, while large parts of the EU sanctions against Iran will be lifted on Implementation Day, U.S. sanctions relief mostly will be limited to the easing of so-called “secondary sanctions” that apply to non-U.S. companies engaged in certain activities involving Iran; U.S. companies will continue to be largely prohibited from engaging in most transactions with Iran even after sanctions relief occurs on Implementation Day.

United States Developments

On 28 December 2015, U.S. Secretary of State John Kerry released an update on progress toward Implementation Day under the JCPOA stating, “[a]s we get closer to Implementation Day, the next major milestone in the JCPOA, I am pleased to report that we have seen important indications of significant progress towards Iran completing its key nuclear commitments under the deal.” Secretary Kerry’s statement came as Iran took a “significant” step toward fulfilling its commitments under the JCPOA by shipping more than 25,000 pounds of low-enriched uranium to Russia.

The U.S. Government has not otherwise provided any new information regarding the timing or manner of the U.S. sanctions relief to be implemented, though the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) again stated its intention to issue more detailed guidance on the implementation of U.S. sanctions commitments prior to Implementation Day. For example, OFAC is expected to issue a general license authorizing non-U.S. entities that are owned or controlled by U.S. persons to engage in almost all activities involving Iran, as long as the U.S. parent and other U.S. persons are not involved. However, the precise scope of such authorization will not be known until additional guidance is provided.

Separate from the nuclear deal, the Obama Administration is considering imposing new financial sanctions on Iranian individuals and entities in connection with Iran’s ballistic missile program. It has been publicly reported that such sanctions have been delayed with no definitive timing on when such sanctions might be imposed, if at all.

European Union : UK Clarification on Conditional Contracts

While there have been similar informal indications from EU sources that Implementation Day may happen in January or February, the EU has not provided any further formal information on Implementation Day (either timing or impact) since publishing on Adoption Day the text of the EU Decision and Regulation which will apply from when the Council of the EU notes that Iran has been verified by the IAEA to have complied with the JCPOA. It is understood that EU guidance will be issued on or just before Implementation Day.

The UK authorities (responsible for the implementation of EU sanctions in the UK) issued on 30 December 2015 updated Frequently Asked Questions (FAQ) guidance on doing business with Iran. This FAQ is noticeably more supportive of UK firms entering into such business than the previous version. It also gives a UK position on a few issues which were previously unclear, including stating that a conditional contract “might be permitted” with an Iranian person to conduct, after Implementation Day, activities which are to be allowed after Implementation Day under the provisions of the JCPOA. Whether such a conditional contract is in fact permitted will “depend on the exact conditions stipulated in the contract and the activities covered[.]” This position contrasts with that of OFAC which maintains the view, where U.S. sanctions apply, that conditional contracts are not permitted. We can provide more detailed advice on the UK position, the wider EU position and the U.S. position on this point for clients who are interested in, or perhaps already considering, such contracts.

Proceeding with Caution

Until sanctions relief actually occurs on Implementation Day, both U.S. and non-U.S. companies should continue to exercise caution with respect to any dealings involving Iran. That said, it may be permissible to begin exploring potential business opportunities involving Iran that would be authorized once sanctions relief occurs, especially for EU and other non-U.S. companies, as it is clear that most non-U.S. sanctions against Iran will be eased immediately once Implementation Day occurs. However, all companies should ensure that any pre-Implementation Day activities are conducted in a manner fully consistent with all sanctions measures currently in place, and U.S. companies in particular should be aware that Implementation Day is unlikely to bring any meaningful easing in U.S. sanctions applicable to their activities.

Dechert’s International Trade team, based primarily in London and Washington D.C., stands ready to advise on all aspects of sanctions risk and compliance in this changing legal environment. Further updates will follow as developments occur.